Views from the Hill An off-the-cuff forum to comment on the trends and happenings we see affecting markets.

Views from the Hill

It was actually quiet in the markets last week. As the Greek proposals for reform were accepted by the Eurozone as widely expected after reaching an agreement to extend the current program for 4 months.

In Canada, the market was powered by gold, mining, and banks, while the U.S. largely drifted after hitting new all-time highs. Over the course of the month, it was the banks doing the heavy lifting, with contributions from Technology, Consumer Discretionary and Valeant Pharmaceuticals (up 21% on news of buying Salix Pharm).

The markets have climbed the proverbial “wall of worry” during February, as the S&P 500 had its best month in 3 years. Nothing seems to faze it. Markets around the world are pumped. The FTSE100 finally hit a new record, it only took 15 years; speaking of which, the NASDAQ is now within 1% of its March 2000 record. The Nikkei 225 surpassed its 2007 peak and the EuroStoxx 600 is closing in on its 2007 peak.

February 7th marked the 3rd anniversary of the launch of Low Volatility Canadian Equities Income Fund, or “LVC” as we like to call it. This milestone is a significant one for any fund because at the 3-year mark we have enough data to see if a strategy is working… or not working (spoiler alert: it is working!).

Problem solving.

Before we look at the Fund’s performance, let’s review why we created LVC in the first place. We know that many Canadians need to be invested in equities to achieve their financial objectives, but volatility can lead to irrational investment decisions, causing investors to panic, sell on market dips and miss out on recoveries. If we could build a fund that experiences smaller dips, fewer dips or prevents them all together, we’d look boring but would still “win by not losing” and keep clients invested, helping them achieve their long-term goals, and hopefully make their advisor’s job a little easier along the way. The goal of such a fund would be to employ strategies that prioritize reducing market risk and maximizing the return these strategies could reasonably provide. With this in mind, we went to work on LVC.

Rethinking success.

With conventional funds we tend to measure success in terms of performance relative to a benchmark. However, if our goal were to be less risky (i.e. less volatile) than our benchmark, we’d have to temper our return expectations as well. So, when developing LVC, we had to redefine success in relation to our expected outcomes.

The data points are stacking up. Get ready for higher ticket prices at Winner’s. Connecting the dots.

We recognize that the U.S. government 10-year yield has been rocky this year with a downward bias. One of the key predictions we laid out for 2015 was that rates will go higher than people think. Through our fundamental analysis, we weave together micro data points from the companies we meet and research with the macro headlines that dominate the news.

I have put down my thoughts for the markets ahead, and while these may not be the thoughts of our entire portfolio management group, I hope you may find something useful.

The Economy and Our Markets

Equity markets and high yield markets have certainly started the year with more volatility that was expected. This pressure should be expected to continue as markets wrestle with the potential that the massive decline in energy prices might be due partly to a real decline in global demand. However, one should not ignore the concerted monetary effort we see by almost all central banks in the developed countries today. On the one hand, we can certainly see why this is occurring as many countries are expecting less than ideal GDP growth conditions, but on the other hand one cannot ignore the fact that many countries are experiencing borderline deflation in their respective economies today. We believe this is an aberration as the massive decline in gasoline prices is certainly playing havoc with how inflation is measured. The reality remains that eventually the savings due to lower crude prices will eventually work its way into the system, even though there is scant evidence of that today. Lower energy prices, combined with near global “easy money” will put the global economy on course for a re-flationary trade that we have not seen before in history. Re-flation should not be feared as it will drive corporate earnings higher and bring about a more normalized inflationary environment.

Is the stage set for a broader recovery in U.S. equities? How will global economies fare? The Aston Hill Investment Team provides their thoughts for the year ahead in the Aston Hill2015 Market Outlook.

Disclaimer:This commentary is published by Aston Hill Financial Inc. (“Aston Hill”). The information contained herein does not constitute a recommendation by the authors or Aston Hill to buy or sell any of the securities, commodities, currencies or other financial instruments or assets discussed herein. This commentary has been prepared using information from sources that the authors and Aston Hill believe to be reliable, however neither the authors nor Aston Hill guarantees the accuracy of such information. This report does not constitute and may not be used for the purposes of effecting an offer or solicitation of units of any Aston Hill investment products. Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus and other publicly filed documents available at www.sedar.com before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.

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Minimum Investment Requirements

The AHF Credit Opportunities Fund is generally available to investors that can meet a certain minimum amount of money to invest. The minimum initial investment for residents in any province or territory in accordance with applicable securities laws is set out below:

All provinces and territories $125,000 or $25,000(1)BC, NB, NS and NL Only: $5,000(2)

Notes:

(1) A minimum purchase of $25,000 is available to residents who meet certain requirements.(2) A minimum purchase of $5,000 is available to residents who meet certain requirements and reside in BC, NB, NS and NL by way of the prescribed OM. Investors should contact their investment dealer or Financial Advisor for more information.

If you can comfortably invest the minimum dollar amount required in your province or territory, please accept the disclaimer below to learn more about the AHF Credit Opportunities Fund.

Disclaimer: Information pertaining to AHF Credit Opportunities Fund is not to be construed as a public offering of securities in any jurisdiction of Canada. The offering of units in the AHF Credit Opportunities Fund is made pursuant to its offering memorandum only to those investors in jurisdictions of Canada who meet certain eligibility requirements. Please read the offering memorandum carefully before investing.

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Minimum Investment Requirements

The Aston Hill Opportunities Fund is generally available to investors that can meet a certain minimum amount of money to invest. The minimum initial investment for residents in any province or territory in accordance with applicable securities laws is set out below:

All provinces and territories $150,000 or $5,000(1)

Notes:

(1) A minimum purchase of $5,000 is available to residents who meet certain requirements. Investors should contact their investment dealer or Financial Advisor for more information.

If you can comfortably invest the minimum dollar amount required in your province or territory, please accept the disclaimer below to learn more about the Aston Hill Opportunities Fund.

Disclaimer: Information pertaining to Aston Hill Opportunities Fund is not to be construed as a public offering of securities in any jurisdiction of Canada. The offering of units in the Aston Hill Opportunities Fund is made pursuant to its offering memorandum only to those investors in jurisdictions of Canada who meet certain eligibility requirements. Please read the offering memorandum carefully before investing.